LLR Licensing Scandal Might Be Linked to Human Trafficking, Report Says

December 22, 2011

Investigative Reports

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The NerveThe state Department of Labor, Licensing and Regulation is still grappling with the fallout of a scandal in 2010 involving an FBI inquiry concerning fraudulent cosmetology licenses possibly linked to human trafficking, prostitution and drugs.

It’s the kind of story seemingly fit for tabloid TV programs like Inside Edition rather than a state agency with a big bureaucracy and – usually – a low profile.

The illicit strangeness of it, however, is not confined to South Carolina, as ties between the innocuous profession of cosmetology and the underworld of human trafficking evidently exist in many parts of the nation.

With a more than $42.4 million budget and 416 authorized full-time employees this fiscal year, Labor, Licensing and Regulation (LLR) is a sprawling cabinet agency. Its responsibilities include everything from conducting fire safety inspections to enforcing immigration-related verification of legal employment status.

One of the department’s biggest operations is its professional and occupational licensing division, which provides administrative support to some 40 independent boards or commissions overseeing fields ranging from auctioneering and psychology to real estate and massage therapy.

Labor, Licensing and Regulation became enmeshed in the fraudulent cosmetology licensing scandal through the actions of a department employee who was fired after a State Law Enforcement Division probe, LLR director Catherine Templeton says in a Dec. 5 report.

The former employee created fake credentials, altered biographical information and used other means to issue fraudulent cosmetology licenses, according to the report.

“We believe (the) terminated employee created and issued several hundred fraudulent licenses using these methods,” the report says.

It also cites other forms of malfeasance in the agency’s cosmetology licensing operations.

Templeton submitted her report to the state Senate Labor, Commerce and Industry Committee.

A subcommittee of that panel, meanwhile, is considering whether to deregulate certain aspects of the cosmetology industry.

“Right now it’s just an open discussion,” says Sen. Kevin Bryant, R-Anderson and chairman of the subcommittee. “We’re looking for ideas.”

The subcommittee’s deliberations would seem to come down to a choice between too much bureaucracy and a corrupt bureaucracy.

Testifying to the subcommittee in November, Templeton herself used the word “corruption” in reference to LLR, describing the agency as “a mess” when she took the helm of it in January.

That could be considered an understatement.

In addition to the cosmetology licensing scandal, the Legislative Audit Council released a report in July citing wide-ranging problems with LLR’s financial, licensing, investigation and contract management procedures.

The Nerve reported on some of those issues in an Oct. 3 story.

Templeton’s report, citing information from the Lexington County clerk of court’s office, says the former cosmetology licensing employee was fired in May 2010 and later arrested and charged with three counts of forgery.

SLED had determined that the individual acted alone, according to the report.

The Lexington County solicitor’s office was responsible for prosecuting the case, but all charges against the terminated LLR staffer were dropped in March, the report says.

The subject entered a pre-trial intervention program to avoid prosecution, Templeton told the Senate subcommittee.

Coupled with the fraudulent licenses, her write-up says LLR “received reports that cosmetology inspectors notified salons prior to inspections to facilitate removal of unlicensed individuals working in the salon.

“The reports also indicated some inspectors accepted payments in return for overlooking violations.”

Templeton then dropped an even bigger bombshell in her posting.

“Finally, the department received reports that fraudulent cosmetology licenses may have ties to human trafficking, prostitution and drugs,” her report says. “The department has since discovered that South Carolina is not alone in these issues as many states are dealing with license fraud in the cosmetology industry.”

So it would seem.

In the first of a four-part series, WGBH public radio of Boston reported in July 2010 on a growing phenomenon of nail salons being used as fronts for human trafficking in the United States.

Said WGBH: “In York, Pennsylvania; East Orange, New Jersey; Salem, Virginia, and just outside of San Jose, California, over the past year, police have discovered women who have been virtually enslaved in nail salons. Some for sex. Others exclusively for labor.”

Templeton’s report says LLR told the FBI about the reports it received of criminal activity. The agency was still providing information to the bureau when she became director at the beginning of this year, according to the report.

The FBI inquiry might be continuing. But, with virtually no exceptions, federal law enforcement officials neither confirm nor deny the existence of an investigation.

“I do understand that the FBI was at one time investigating some of these issues,” Bryant says. “But we don’t know if they are now.”

The senator has posted a link to Templeton’s report on his blog.

In the aftermath of the scandal, the Labor, Licensing and Regulation agency began working to revoke the fraudulent licenses.

“Approximately 60 easily identifiable licenses were tracked down and revoked almost immediately after the investigation,” the report says. “The department’s efforts are ongoing, with a focus on tracing difficult to identify licenses.”

Templeton attributed the fraud to a lack of accountability within LLR and weaknesses in the agency’s technology, and she outlined steps the department has taken to improve in those areas.

On the accountability front, she said in her report that licensing and compliance enforcement functions have been separated: “The separation of licensing and compliance is intended to create a check and balance between those who issue licenses and those who monitor compliance of sanctions and unprofessional conduct.”

Other actions to enhance accountability include using tamper-proof paper to print licenses; installing tracking devices in vehicles assigned to inspectors to monitor their travel; and discontinuing the practice of inspectors collecting payment for code violations, according to the report.

In the realm of technology, the report says:

“We enhanced our database, allowing administrators to monitor licensing and to measure performance of programs and personnel. Individual codes and passwords govern access to the computer system, so individual entries into the system can be tracked.”

Templeton closes her report by saying the agency continues working to better its security protocols. “I am confident,” she says, “that the measures we have implemented over the last year will prevent similar activity.”

Reach Ward at (803) 254-4411 or eric@thenerve.org.